Obama Administration, Attacking Insurance Company Profits, Lumps In Some Non-Profits

By MichaelJames

Feb 20, 2010 1:18pm

ABC News' Jake Tapper and Kate Snow report:

On Thursday, Secretary of Health and Human Services Kathleen Sebelius issued a report titled “Insurance Companies Prosper, Families Suffer: Our Broken Health Insurance System,” in which she pinned the rise of premiums in the individual health care market squarely on the profit margins of large insurance companies.

“I think this kind of rate increase gives a highlight to why the president said a year ago we need to address health reform, comprehensive health reform as part of addressing the economy,” Sebelius said. 

The HHS secretary, the former Kansas insurance commissioner, noted that it was not just Anthem Blue Cross in California raising premiums on some customers, but other companies including Anthem of Connecticut and Anthem of Maine.

Sebelius noted in her letter last week to Anthem Blue Cross in California that its parent company, WellPoint Incorporated, earned $2.7 billion in just the last quarter of 2009. Quarterly sales went from $15.1 billion to $19 billion — a 26 percent rise.

"We're seeing this at the same time where not only is there an economic downturn around the country, but we know that insurance companies are not suffering that same kind of downturn," Sebelius said. "The five largest insurers in America have declared more than $12 billion worth of profits in 2009."

At a different point in her press conference, Sebelius said, "Insurance companies in the health insurance market have made 250 percent profits over the last eight or nine years."

Sebelius also included in her report and her public remarks: Blue Cross/Blue Shield of Michigan, Regence Blue Cross/Blue Shield of Oregon and Blue Cross/Blue Shield of Rhode Island.

President Obama also mentioned the Michigan insurer in his presidential address today, lumping in the company with Anthem Blue Cross.

After describing how "Anthem was alerting almost a million of its customers that it would be raising premiums by an average of 25 percent, with about a quarter of folks likely to see their rates go up by anywhere from 35 to 39 percent," he said, "It’s not just Californians who are being hit by rate hikes. Last year, Michigan Blue Cross Blue Shield raised rates by 22 percent after asking to raise them by up to 56 percent."

The president said that the "bottom line is that the status quo is good for the insurance industry and bad for America. Over the past year, as families and small business owners have struggled to pay soaring health care costs, and as millions of Americans lost their coverage, the five largest insurers made record profits of over $12 billion."

The three Blue Cross/Blue Shield companies from Michigan, Rhode Island, and Oregon might be good examples for the administration's argument that something needs to be done to control health care costs.

But it's unclear that they're the bext examples of avaricious, profit-hungry insurance predators.

Because they are all not for profit, and heavily regulated by their state governments.

"We're concerned about the broad brush they're using to paint the industry," Michigan Blue Cross/Blue Shield CEO Andrew Hetzel told ABC News.

"We have a regulatory system" in Michigan, he said. "We have to accept everyone."

This is not to defend any of the non-profits for the way they run their companies. Each has been criticized for premium increases, for not reducing administrative costs enough, for not being efficient or low-cost.

But they are not driven by profits, as the report and Sebelius's comments suggested.

HHS spokesman Nick Papas told ABC News that while the non-profits are cited in the report, the report "mentions those companies but doesn’t discuss their profits. The discussion of profits is only related to for-profit companies."

The title of the section in which the three companies are listed is: "Premiums Rise, Insurance Industry Profits Increase, Health Care Costs Cripple Working Families," and executives from those companies certainly felt lumped in with the companies driven by profits in a report assailing them for "prospering."

As Hetzel tweeted: "#Sebelius report: 'Insurance Companies Prosper, Families Suffer.' #BCBSM lost $133 million on individual plans in 2008. Not prospering."

Papas said, "Families are suffering. … Maybe more important is the fact that these insurance companies – both non-profit and for-profit – requested massive premium increases. Those requests were rejected by state regulators who look at things like company solvency."

That's true, but while Michigan regulators denied Blue Cross/Blue Shield of Michigan's request for a 56 percent rate hike, they did approve a 22 percent premium increase, all while the company had $133 million in losses in 2008 and is projected to have $280 million in losses for 2009.

(Moreover, Michigan was cited in a White House report as having had the lowest percentage premium growth over the past decade of all 50 states.)

Last year, Blue Cross/Blue Shield of Rhode Island CEO Jim Purcell said, the company requested a 6 percent premium increase for individual plans, "and we got zero, so we've been losing money in that book of business for awhile. But we are statutorily required to insure in that area and we continue to do so."

The company, overall, lost $115 million last year.

"We don’t like losing money on any business,, but we understand that in the individual market these are the most vulnerable people becuse they pay 100 percent of their premiums and we understand being the insurer of last resort we have some obligations here," Purcell said.

Purcell said the company's current request for a 10.2-percent increase won't even allow it to break even, though that request was denied in favor of an increase of around 7 percent.

As in Michigan and Rhode Island, Regence Blue Cross/Blue Shield of Oregon is losing money in the state in individual plans. In October 2009, Regence filed a request to increase individual rates by 19 percent; the state approved a nearly 15 percent increase.

This year, Regence Blue Cross/Blue Shield of Oregon made a rate request for 25 percent, and the state approved a 16 percent hike.

Michigan Blue Cross/Blue Shield CEO Hetzel said that "our loss ratio in the individual market is 120 percent," meaning, "We’re paying out $1.20 for every dollar we collect in premiums."

Hetzel said the uninsured "come to us because they have only one place to go. Our pool is unhealthy, and that drives up our cost."

"Our state law requires us to go back and ask for rates that are commensurate with our losses," he said. "Our health plan is strongly regulated. We have to go to the insurance commissioner and ask for permission to raise rates, we have to justify it, and anyone can challenge that request."

Last year, the state attorney general challenged it, for instance.

"And then we have to prove it’s what we need," Hetzel said.

"We make zero profit" on individual plans, he said. "Our reserves have declined for five straight years. … We’re losing hundreds of millions a year on only 7 percent of our total membership" — the ones with individual plans. "The losses on that segment of our business are dragging our business down."

Purcell said the rate increases are almost entirely driven by rising health care costs.

"Even if you cut administrative expenses by 20 percent, that would cause, for example, our 12 percent rate increase to be an 11 percent increase," Purcell said. "It's not about the administrative expenses. It's about the claims expense, which is 90 percent of the bill."

Regence Blue Cross/Blue Shield of Oregon is also a nonprofit, and while it is not required to provide coverage to everyone, individuals who are denied for individual coverage can enter into the state's high risk pool, which also is handled by Regence Blue Cross/Blue Shield of Oregon.

Of Sebelius's charges, CEO Purcell said, "She should know better. She should know better, she was a regulator at one point."

Papas said the report — titled, “Insurance Companies Prosper, Families Suffer" — was not only about insurance company profits.

"The report is a wide ranging look at the many problems with our health insurance system and how families are impacted," Papas said.

He did not explain how the three non-profits cited in the report were prospering.

- Jake Tapper and Kate Snow

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